Hard(ware)ening

The fear that AI is disrupting the software industry is reaching new highs and markets are reacting in a very binary way. Year-to-date, the S&P 500 Software Index, which includes best-in-class names such as Microsoft, Oracle or Adobe, is down around 20%, while the PSE Semiconductor Index, with NVIDIA, AMD, Broadcom or Micron, is up about 14%. The narrative writes itself: hyperscalers keep upgrading computing power to meet AI demand, so hardware wins and software loses. Our take is that reality is more nuanced than the current positioning suggests. Yes, AI-linked capex is real, but semiconductors remain a cyclical business and disappointments will come, as they always do in hardware. And while some software applications may be disrupted or commoditised, software as a whole will not “disappear”: solid data infrastructure, databases, security and mission-critical systems remain essential, and in many cases AI actually increases the need for clean data, governance and reliable systems of record. As long-term investors, we see this almost religious rotation as an oversimplification of underlying realities — and potentially as a source of new opportunities on the neglected side of the trade.